The DOJ and the SEC brought criminal and civil charges against former Credit Suisse bankers alleging misstatements about the bank's valuations of $3 billion in subprime mortgage-backed securities during the financial crisis. A former trader, Salmaan Siddiqui, and his supervisor, David Higgs, pleaded guilty to a criminal conspiracy charge. The former global head of the Structured Credit Trading unit, Kareem Serageldin, was also charged; he is believed to be in the UK. Credit Suisse was not charged.

According to the SEC, the employees deliberately ignored specific market information showing a sharp decline in the price of subprime bonds under the control of their group. They instead priced them in a way that allowed Credit Suisse to achieve fictional profits. Serageldin and Higgs periodically directed the traders to change the bond prices in order to hit daily and monthly profit targets, cover up losses in other trading books, and send a message to senior management about their group’s profitability. The SEC alleges that the mispricing scheme was driven in part by these investment bankers’ desire for lavish year-end bonuses and, in the case of Serageldin, a promotion into the senior-most echelon of Credit Suisse’s investment banking unit.

The SEC alleges that the scheme reached its peak at the end of 2007, when the group recorded falsely overstated year-end prices for the subprime bonds. Just days later in a recorded call, Serageldin and Higgs acknowledged that the year-end prices were too high and expressed a concern that risk personnel at Credit Suisse would “spot” their mispricing. Despite acknowledging that the subprime bonds were mispriced, Serageldin approved his group’s year-end results without making any effort to correct the prices. When the mispricing was eventually detected in February 2008, Credit Suisse disclosed $2.65 billion in additional subprime-related losses related to the investment bankers’ misconduct.

The SEC explained that its decision not to charge Credit Suisse was influenced by several factors, including the isolated nature of the wrongdoing and Credit Suisse’s immediate self-reporting to the SEC and other law enforcement agencies as well as prompt public disclosure of corrected financial results. Credit Suisse voluntarily terminated the four investment bankers and implemented enhanced internal controls to prevent a recurrence of the misconduct. Credit Suisse also cooperated vigorously with the SEC’s investigation of this matter.